1. ____________This refers to the relative importance of an item or event. An item is considered significant if knowledge of it would influence prudent users of the financial statements..
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Theoretically, all items, large or small, should be treated alike. Materialityconvention implies that the economic significance of an item will to someextent affect its accounting treatment.Materiality in its essence is of relative significance. In the sense that some ofthe unimportant items are either left out or included with other items.For instance, acquisition of items like fountain pen, stapler, pin cushion,punching machine etc., can be treated as part of assets, when consideringtheir durability and span of life. But, it is not necessary to maintain separateledgers. Such low cost items can be treated as expense for the period.Therefore, unimportant items are either left out or merged with other items.The reason for this different treatment lies in the magnitude of their amount.The dividing line between material and immaterial varies according to thecompany, the circumstances of the transactions and economic significance. Itshould also be noted that an item considered to be material for one businessfirm, may be immaterial for another firm.Similarly, an item of material in a year may not be material in the subsequentyears. Similarly, most of the companies publish their financial statements inwhole rupees round figures, by ignoring paise.Omission of paise is immaterial, i.e., insignificant when figures appear inlakhs. In short, all material information should be disclosed that is necessaryto make the financial statements clear and understandable.Management accounting is the process of preparing management reportsand accounts that provide accurate and timely financial and statistical
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